Risk-return off kilter in MJW survey

May 1, 2016

Mark Weaver: MJW principal

Asset allocation has made little difference to headline results for the average KiwiSaver fund since the scheme’s inception in 2007, according to the latest Melville Jessup Weaver (MJW) investment survey.

“All funds, with their risk profiles differing from growth to conservative, have similar results which is interesting given that the period includes the share market crash in 2008/09 and the subsequent recovery,” the MJW survey says. “Of course, going forward we would not expect this to be the case and a further point to note is that the level of funds invested when the markets crashed would have been minimal meaning that most contributions have enjoyed the benefit of the strong returns subsequently, particularly the growth fund.”

Over the eight years since March 2008, returns for the median KiwiSaver fund across the five risk profiles measured in the MJW report ranged from 5.7 per cent (moderate balanced) to 6.6 per cent in the growth category.

While the MJW survey shows greater variance across the risk profiles over the five-year period – where median fund returns ranged from 6.2 per cent for conservative to 9.1 per cent for growth – performance clumped again during the latest 12-month and quarterly periods.

In the 12 months to the end of this March, median KiwiSaver returns ranged from 2.9 per cent for moderate balanced to 4.5 per cent in the balanced category – with most hovering around the 4 per cent mark.

Quarterly returns ranged from 1.3 per cent for growth to 2.2 per cent for conservative in a perfect inversion of the expected risk-return payoff.

In spite of the compression of median returns across the KiwiSaver fund risk profiles for the year, the MJW survey found considerable deviation between individual managers.

The AMP KiwiSaver Nikko Balanced fund reported the highest returns (8.7 per cent) in the 12 months to March 31 with the KiwiWealth Growth fund taking out the booby prize with a -5.8 per cent loss over the period.

“A review of the variance of the manager results shows how for the conservative funds the range of outcomes is just 2.3% while for the growth funds with their more diverse range of strategies we see a massive range of 16.5%,” the MJW report says.

As well as reporting the highest annual returns in the KiwiSaver rankings, Nikko was also the stand-out performer in the broader wholesale balanced fund market measured by MJW.

According to the MJW survey, the Nikko wholesale balanced fund returned 10 per cent over the 12 months to March 31, beating the benchmark by 4.5 per cent and its nearest competitor, Fisher Funds, by 3.3 per cent.

Mark Weaver, MJW principal, said the Nikko balanced fund performance was underpinned by excess returns in a few sectors, including: Australasian shares, where the group’s concentrated fund returned 21.9 per cent compared to the benchmark 7.9 per cent; global shares (4.75 per cent versus a zero benchmark), and; an 18.3 per cent result from the manager’s Option fund, which beat its benchmark by almost 11 per cent.

Milford Asset Management is the number one performer in the wholesale balanced fund sector over five years, reporting a 12.7 per cent return compared to 9.3 per cent for the benchmark, while ANZ Investments remains ahead for the 10-year period (7.7 per cent versus a benchmark of 7.2 per cent).